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Revolving Accounts – What You Need To Know

Revolving balances play an important role in your credit score calculation. The total of your revolving debt makes up about 30% of your credit score. Balances on installment loans don’t have any where near the impact on credit scores as revolving balances do. While having a revolving balance or two can help your credit scores, used the wrong way they can also have a significant negative impact.

It is very important to try to keep revolving balances below 20% of the high credit. The higher the balance and the closer it is to the credit limit the more negative the impact will be to your scores. It is also important not to have too many revolving balances. Optimally that would be 2-3 cards with low balances and several open credit cards that are occasionally used but carry no balance. Paying all your cards off every month is, surprisingly, not a good idea. The bureaus scoring models like to see at least one or two cards with a small balance on them. If you have no revolving balances it can actually hurt a credit score. The scoring models also do not take into account that balances are paid off every month. Since every creditor reports differently to the bureaus, it is very likely that if you pay a balance off every month it could be after that creditor has reported to the bureaus. So your credit report would still reflect that balance. This is why it is so important to keep the revolving balances to a minimum.

When payments are made to a creditor, and this applies to any creditor, it needs to be made on time. A lot of consumers are under the impression that as long as payments are made to their mortgage, auto, and student loans on time it won’t have as much of a negative impact if they miss a payment on a small store credit card. The type of account a late payment is incurred on is not what matters. Any late payment, on any account is going to have a significant negative impact. A late payment can easily drop a credit score 100 or more points. And that includes a mortgage late, a late car payment or a credit card.

If you have established a good history with revolving balances it would be advisable not to open any new credit cards. When you open a new account you are incurring a revolving inquiry, a new account with no history and most likely another balance. All of which can affect a score negatively. While it is good to have several open credit cards, once a good history on those cards has been established, don’t be tempted to open any more.

If a consumer does find themselves in trouble with credit card balances, a good strategy would be to ask the creditor for a credit limit increase. Most creditors are willing to do this once a year, especially if the card has a good payment history. When asking for this it is always a good idea to ask to speak to a supervisor. A consumer has a much better chance of getting what they want if they speak to a manager or supervisor rather than the customer service rep that will most likely answer the phone. Once a higher credit limit has been secured the percentage of what is owed on the card will go down and benefit the credit score.

Revolving balances can be tricky. Any balance, revolving and installment, can affect a credit score, but the revolving balances (credit cards) are particularly influential. Those balances, when utilized correctly, can have a very positive affect on a credit score. But used unwisely can be very detrimental. They need to be used very carefully to optimize the influence they will have on credit scores.

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